Union or Open Shop? What Does It Mean for Your Construction Project?

The labor strategy can affect contractor selection, competition, cost, workforce availability and project requirements. Owners should understand the implications before bidding begins.

“Union shop” and “open shop” are terms owners may hear as soon as contractors begin discussing how a construction project will be staffed.

If you don’t work in construction every day, the distinction may not be obvious.

At its simplest, a union contractor employs workers under collective bargaining agreements with labor unions. An open-shop contractor operates without requiring its workforce to be represented by a union.

But knowing the definitions doesn’t tell an owner what either approach means for a particular project.

The more useful question is:
How will the labor strategy affect our cost, competition, schedule and ability to get the project built?

Start With the Project Requirements

Before comparing union and open-shop contractors, determine whether you actually have a choice.

A landlord or building may have established labor requirements or practices. A project labor agreement may apply. Publicly funded work may carry prevailing-wage or other labor requirements. Local market conditions can also make one approach substantially more practical than another.

On an occupied property, there may be another consideration: how the selected contractor and trades will work alongside the building’s existing operating and service contractors.

These issues should be understood before contractors are invited to bid.

Discovering a labor restriction after pricing has started can mean rebidding the project or eliminating bidders you have already spent time evaluating.

What Is a Union Shop?

A union contractor employs workers represented by labor organizations under collective bargaining agreements.

Those agreements typically establish wages, benefits and various employment conditions. Union contractors may also obtain workers through established hiring halls and apprenticeship systems.

For an owner, one potential advantage is access to an established pool of trained tradespeople, particularly in markets where union construction has a substantial presence.

The tradeoff can include higher wage and benefit rates and work practices established through collective bargaining agreements.

But higher labor rates do not automatically mean a higher total construction cost.

Productivity, staffing, competition among bidders, schedule performance, logistics and the contractor’s management of the work all affect the final cost.

What Is an Open Shop?

An open-shop contractor does not require its workforce to be represented by a union as a condition of employment.

The contractor generally has greater flexibility in establishing wages, benefits, staffing and workforce practices, subject to applicable labor laws and project requirements.

That flexibility can sometimes translate into lower labor costs or a broader pool of contractors.

But an owner should be equally careful with that assumption.

Lower hourly labor rates do not guarantee a lower project cost. The availability and experience of the workforce, productivity, supervision, schedule and ability to staff the project still matter.

A strong open-shop contractor may have an experienced, highly trained and stable workforce. A weak one may not.

The same principle applies to union contractors.

The label doesn’t build the project. The people and organizations you hire do.

Where Are the Pros and Cons?

There is no universal winner. The advantages and disadvantages depend on the project and market.

The point of the comparison isn’t to declare one approach better.

It’s to understand what each means for your project.

Don’t Compare Labor Rates Alone

Owners can get pulled toward a simple comparison:
Union labor costs more per hour. Open-shop labor costs less per hour. Therefore, open shop must cost less.

Construction doesn’t work that neatly.

Suppose one contractor has a higher hourly labor rate but needs fewer hours to perform the work. Another has lower rates but requires more labor, more supervision or a longer schedule.

Which one costs less?

You can’t answer that from the wage rate.

The same applies to schedule. A contractor’s theoretical ability to staff a project means little if the necessary trades aren’t available when the schedule requires them.

The owner should evaluate the complete construction proposal rather than one component of labor cost.

Understand the Local Labor Market

Labor strategy is also highly market-specific. What works well in one city or region may be very different somewhere else.

The strength of union and open-shop contractor markets varies by location and trade. So does workforce availability.

A project requiring electricians, carpenters, operating engineers, plumbers and specialty trades may encounter different labor conditions for each.

That makes local contractor input valuable during procurement planning.

Before deciding how the project will be bid, I want to know:
Who are the qualified contractors capable of performing this work, and what happens to that pool if we impose a particular labor requirement?

Ask Before You Bid

For an owner, several questions should be answered before the procurement strategy is finalized:

• Does the building, landlord or project impose labor requirements?
• Are there public-funding, prevailing-wage, project labor agreement or other requirements that affect the work?
• How does the labor strategy change the pool of qualified contractors and subcontractors?
• Is sufficient skilled labor available for the trades and schedule we need?
• What effect could the approach have on pricing and bidder competition?
• Are there operational or site considerations that affect how different labor forces can work on the property?

Those answers provide a much better basis for a decision than simply asking whether union or open shop is cheaper.

The Labor Strategy Is Part of the Procurement Strategy

Owners don’t need to become labor-relations experts to manage a construction project. They do need to understand the environment in which the project will be built.

If the labor approach changes who can bid, how the project can be staffed, what it may cost or whether the work can proceed as planned, it belongs in the procurement discussion early.

By the time bids arrive, the owner should already understand those implications.

Leadership Takeaway: Don’t select a union or open-shop strategy based on labels or labor rates alone. Understand the project’s requirements, the local contractor and labor market, workforce availability, bidder competition and total cost implications before deciding how the work should be procured.

This article provides general project-planning information. Labor requirements vary by jurisdiction, property, contract and project; obtain appropriate legal and labor guidance for the specific project.